Zara: IT for Fast Fashion case study tackles the challenge for Zara to improve its IT system and operations. For years, the company has been using the DOS, which is now considered obsolete and has limited capabilities. Still, the company has a well-performing value chain that answers the call of the industry.
Andrew McAfee, Anders Sjoman, Vincent Dessain
Harvard Business Review (604081-PDF-ENG)
June 25, 2004
Case questions answered:
- What is the Zara “business model”? How is it different from the business model of other large clothing retailers? What weaknesses, if any, do you see within this business model? Is it scalable?
- Should the company upgrade the POS terminals to a modern operating system?
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Case answers for Zara: IT for Fast Fashion
Q1) What is Zara’s “business model”? How is it different from the business model of other large clothing retailers? What weaknesses, if any, do you see within this business model? Is it scalable?
Zara’s Business Model
The Zara business model is based upon fast manufacturing and delivery systems in order to meet rapidly changing customer demand. They don’t rely on forecasting consumer data. Instead, they observe the trend in society and adjust their supply and delivery according to the market. The clothes offered by ZARA are trendy but less durable as Zara saved money by not using expensive material. Customers were ready to buy this because they got to wear the latest fashion. Zara’s target customers were fashion-sensitive urban people. Their primary focus lies in speed and decision making. Instead of producing clothes and then pushing them in the market, Zara used to sense the latest trend with the help of its’ product managers’ and then provide stylish clothes. The job of product managers was to go out in prominent urban areas and figure out the latest fashion trends and give feedback to designers. Based on the feedback, Zara would produce clothes quickly and spread it in their stores. Zara did not spend much money on advertising (only 0.3% of their revenue). Instead, they relied on the strategy of opening their stores in prime locations of the city, with attractive interiors for the store. Moreover, Zara did not sell their product on the internet as distribution centers were not designed to pick up small orders, and it would be too complicated to handle returns.
How is this business model different from other clothing retailers?
Zara’s unique model is in direct contrast with most of the large clothing retailers. Generally, retailers focus on marketing their products, but Zara focuses on utilizing its resources on being able to manufacture clothes while they are still on-trend. Under this strategy, Zara maintains little to no inventory, and their clothes are sold out within 3-4 weeks. Zara has a highly responsive vertical integrated supply chain compared to conventional outsourcing strategy followed by other retailers. This responsiveness helped Zara to maintain lower lead times compared to competitors. On the marketing front, Zara advertises for their yearly sales and new store locations only, whereas large retailers market their offerings. Generally, big retailers had a single design team, but Zara had dedicated teams for different categories like children, women, etc. Typically, firms relied on producing classic clothing that lasted long and were durable. Instead, Zara made trendy and short-lived clothing but increased the new launches per year. Zara, on an average, launched 11000 new products compared to industry standards of 2000-4000. The differentiating factor of ZARA’s business model was the freedom store managers had in choosing what would be sold in their stores.
Weaknesses in business model
- The major weakness is the low involvement of IT in their business practices which is also evident from the fact that they do not have any Chief Information Officer
- There is no…